Water industry regulator Ofwat has called into question cost claims submitted by United Utilities, Thames Water and Bristol Water for their AMP6 Business Plans running into hundreds of millions of pounds.
Ofwat has today written to Bristol Water, Thames Water and United Utilities to inform them that it is already clear that, for individual price controls, very material differences remain between the companies’ re-submitted plans and its own assessment of efficient wholesale costs.
The current ‘gaps’ identified by Ofwat for each company are as follows:
- Bristol Water – Water: £203m (57%)
- Thames Water – Thames Tideway Tunnel Costs: £331m (102%)
- United Utilities – Wastewater: £760m (29%)
The concerns are focused on the future planned expenditures on Bristol Water’s wholesale water price control, the proposed separate price control for Thames’s costs in respect of the Thames Tideway Tunnel, and United Utilities’ wholesale wastewater price control.
Ofwat says that for each of these price controls it is clear that there is still more than a 20% difference between the company’s plan and the level of costs we currently consider to be efficient based on a combination of our cost modelling and the evidence that companies have provided.
According to the regulator, the differences are materially different from those for all other companies for the purposes of draft determination and, where relevant, the companies’ other wholesale price controls.
For Thames the concerns relate to how contingencies and risk have been included in Thames’s part of the Tideway Tunnel work and how they are being managed within the new proposed price control framework.
Ofwat commented:
“This early notification is intended to protect customers by allowing those companies with very material differences time to reconsider their plans in these areas or to provide further compelling evidence in responding to Ofwat’s draft determinations that the costs they are putting forward are efficient so Ofwat can take this into account in its final determinations in December. These companies may wish to re-engage their customer challenge groups and engage with other regulators.”
Ofwat will issue draft determinations for all relevant water and wastewater companies (including these three) as planned on 29 August 2014. All relevant companies and other stakeholders will then have until 3 October 2014 to make any representations in relation to these draft determinations. Final determinations will be issued in December.
Ofwat is intending to set separate price controls for wholesale water and wastewater, for household and non-household retail activities and, in the case of Thames Water, for the Thames Tideway Tunnel.
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